In 2014-0528021E5, the CRA usefully discussed the taxation of timber limits. Some quick observations:

  1. A timber limit typically represents the right to cut timber which arises from fee simple ownership of the underlying land (page 3).
  2. A timber limit which is not held on income account (i.e., is not inventory) may be treated as a depreciable capital property. As such, capital cost allowance (CCA) may be claimed separately in respect of the cost of each timber limit under s. 1101(3) and Schedule VI of the Regulations (pages 3-5).
  3. A sale of the (residual) land after timber has been removed could result in recapture for proceeds up to the original capital cost, and a capital gain for proceeds in excess of original capital cost (page 6).
  4. Timber limits are not included in Class 15 (page 5). Assets typically included in Class 15 are those acquired for the purpose of cutting and removing merchantable timber from a timber limit in a situation where the property is likely to be of no further use after all merchantable timber has been removed (page 5).